The Hidden Cost of Being a Distributor for an MLM Company - Good Housekeeping

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By 2016, Josie Naikoi, then 29, had hit what she thought was the pinnacle of her career. She was pulling in a six-figure salary — more money than she'd ever imagined making during her seven years as a hair stylist. With it, she was able to put her little sister through college, pay off a pile of medical debt and feel a tremendous sense of financial security.

Josie was a distributor at a multi-level marketing company, or MLM, selling health and fitness supplements and aids to her friends, family members and social media followers, as well as actively recruiting new sellers for her team (called her "downline" in MLM parlance) and earning a percentage based on their sales. MLMs sell products through person-to-person sales. If you go all in, as Josie did when she quit her job as a hair stylist to work as a distributor full-time, the benefits can be intoxicating. Josie, who lives in Missouri, frequently traveled to conventions, team retreats and sought-after speaking engagements — all on her own dime.

From 2013 to 2019, Josie Naikoi (top) was a distributor at three different MLMs.

courtesy of subject

By 2017, Josie claims that her annual income had dropped significantly, even though she believes she was working just as much — if not, more — than the year before. She felt under pressure to deliver, so she moved to another MLM in hopes to bring home a bigger paycheck. But from 2013 to 2019, as Josie worked at three different multi-level marketing companies, she got the impression that a toxic atmosphere — never-ending demands to meet sales goals, an around-the-clock workload and manipulative behaviors — was pervasive wherever she went.

As Josie's job stress increased, her health declined. She began to have panic attacks and her doctor was concerned about her high blood pressure. "You're a frog in a pot of warm water who doesn't know it's being boiled," Josie says, reflecting on her time as a distributor.

In 2019, she had finally had enough. Despite the community, the money and the lifestyle it afforded her, she unceremoniously terminated her contract to start anew.

But last year, Josie began to notice the ways the distributors were "preying on all of these scared people" amid the coronavirus pandemic and she felt compelled to share her story in a YouTube video (the video includes personal statements that Good Housekeeping was unable to independently confirm). Although she didn't call out any MLMs by name in the video (and also asked that we omit the company names from our story), her words clearly made an impact: Since it was posted last May, the video has racked up more than 722,000 views.

Jamie Pesnell has a similar story. Back in 2018, she was working anywhere from 50 to 60 hours managing a local bar in Texas, but was still nowhere near close to paying off her debt. A high school friend told her to give Arbonne, a plant-based skincare and nutrition company with more than 400,000 active consultants around the world, a try. Her first check from Arbonne covered a monthly car payment, and the money continued to multiply.

But just three months later, Jamie's views on the company's atmosphere shifted. "It felt very high school. If you weren't one of the top [sellers], you didn't seem to matter," she remembers. The final straw: She claims that some consultants (the company's term for "distributor") shared photos of her personal weight loss as if it was an Arbonne success story; it wasn't. She decided to "cut ties and tell people that I no longer wanted to associate with it [Arbonne]," fearing that her before-and-after photos caused some people to sign up for Arbonne "under false pretenses." (Jamie never reported this behavior to Arbonne and the company tells Good Housekeeping that they don't "condone deceptive, misleading, unethical or illegal practices of any kind.")

Similar to Josie, she posted a YouTube video about her experience working as a consultant for Arbonne. After the video went live, some consultants above Jamie, known as her "upline," reached out to her, saying they were unaware that she felt this way; Arbonne never commented on Jamie's claims.

Today, Josie and Jamie are just two of many outspoken voices in the rising anti-MLM movement.

MLM Terms Dictionary

Multi-level Marketing (MLM)

Companies that sell products through person-to-person sales

Distributors/ Consultants/ Direct Sellers

Independent contractors who work for MLMs, selling products to consumers and recruiting new distributors to do the same

Upline

The person who recruited you into the MLM along with all of the other distributors in the levels above you

Downline

The people that the distributor has recruited into the MLM

Overrides

The commissions that a distributor can earn with some companies from the product sales of their downline

Top 1%

Distributors who reach the highest income level at a company

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Multi-level marketing companies are big business: In 2019, the industry generated $35.2 billion in retail sales and engaged roughly 6.8 million direct sellers (also called "distributors" or "consultants"), according to a survey conducted by Direct Selling Association, an MLM trade group. With more social media platforms at their disposal and an increased interest in additional earnings opportunities, many MLMs have seen growth in recent years — there was a 9.9% increase in the number of direct sellers from 2018 to 2019, for example. In their 2018 study, AARP Foundation even went so far as to say that the MLM industry had "experienced a renaissance due to the ease and low cost of social media marketing and expansion into emerging markets across Latin America and Asia."

The numbers continue to grow amid the coronavirus pandemic. Direct Selling Association showed that 65% of the 46 companies that participated in a coronavirus business-impact tracking survey claimed the pandemic has had a "positive" impact on their U.S. revenue.

It makes sense: Millions of unemployed Americans are seeking new job opportunities that can be performed at home along with a feeling of community amid months of social distancing — something that MLMs offer, pandemic or not.

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"There's a vulnerability that gets people in," Josie says. "For me, the vulnerability wasn't that I was looking for supplements. The vulnerability was that I was starting to drown in medical debt. I needed something to help me and that's where the opportunity came into play."

Sixty percent of distributors who participated in the 2018 study by AARP Foundation were women, many of whom were married or living with a partner, had no commission-based work experience and held another job to make ends meet. To an extent, both Josie and Jamie checked all of these boxes, too.

Relationships are at the heart of the recruitment process. "We were trained to recruit people in small doses," Josie recalls. "You give them bite-size information that they can digest until they can handle more." Distributors are encouraged to reach out to their network in a personal way by cold-calling a friend or sliding into an acquaintance's DMs on Instagram. If you're not sure where to start, your upline may "give you a paper with 100 name slots on it and you're supposed to fill it with names of 100 people in your life who might be interested in the business opportunity," says Jamie.

A screenshot of an Instagram post introducing Jamie Pesnell to other Arbonne consultants.

courtesy of subject

In many ways, distributors are social media whizzes. "They tell you to take any story you've had, anything you've been through in your life, any tiny thing, to take that and exploit it, whether it's to recruit people to your team or to sell," Josie points out. Even if MLM companies don't condone or encourage this behavior, the distributors ultimately call the shots — and in some cases, they leverage their own health experiences for the sake of their business. Outspoken critics of the MLM industry, like YouTubers Kiki Chanel and CC Suarez, have detailed how some distributors use their pregnancy as a "business builder" or share their infertility to recruit women facing similar struggles.

They'll invite you to parties, ask you over for dinner and meet your family, all in an effort to use your relationship to build their business. There's a psychological reason why it works: "As humans, we'll do almost anything for people that we know, that we're familiar with," explains Lea Lis, M.D., double board-certified adult and child psychiatrist and author of No Shame: Real Talk With Your Kids About Sex, Self-Confidence, and Healthy Relationships. This sense of familiarity "breaks through a lot of psychological paradigms" because humans "immediately default to truth."

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There's a point, however, when this level of trust between distributors, the companies they work for and their clients potentially turns harmful. In December 2020, TikTok made a bold stand against this behavior by updating their Community Guidelines to include that users can't "post, upload, stream or share content that depicts or promotes Ponzi, multi-level marketing, or pyramid schemes." This decision, according to TikTok, was made to protect users from "content that deceives people in order to gain an unlawful financial or personal advantage." As of publication, TikToks using #antiMLM have racked up more than 77.5 million views.

This drastic move came after the Federal Trade Commission sent warning letters to a number of MLMs, including Arbonne and Rodan + Fields, on April 24, 2020 for sharing misleading health or earnings claims amid the coronavirus pandemic. The letters urged companies to send an email response to the FTC within 48 hours, describing specific actions that they are taking against these claims.

One of the examples outlined by the FTC showed an Arbonne participant claiming that their Immunity Support product helped combat COVID-19:

"I'll be going live on my #IGTV in a couple of hours talking about a product, which we've got over at #Arbonne called 'Immunity Support.' Drop me a message if you're interested in finding out more & how you can boost up your immune system right now. #CoronaVirus #ImmuneSystem."

Arbonne released a public statement about the FTC's claims on April 25, 2020, within the 48-hour window. The statement read:

"We sincerely regret content posted by Independent Consultants that failed to adhere to FTC guidelines and which do not align – not only to our core values, but also with our Policies & Procedures, and our Code of Ethics. Arbonne upholds the highest standards of integrity and we do not condone deceptive, unethical or illegal posts, claims or practices – especially given the seriousness of the COVID-19 emergency. We pride ourselves on a culture of compliance, and we are taking action to remove these and similar posts and further strengthen our practices to prevent future incidents. Independent Consultants responsible for the posts that have been identified by the FTC as non-compliant will have their accounts with us immediately de-registered. Arbonne does not tolerate this or any practice that seeks to take advantage of the current COVID-19 pandemic or any other non-compliant activity."

Rodan + Fields, a skincare company that sells serums, face masks and dermatologist-inspired products, was also called out by the FTC. In one example, a Rodan + Fields "business opportunity participant" used the staggering unemployment rates to attract new people to their team:

During an uncertain time like this, one thing I am grateful for is residual income from my home based business. If you're struggling, and could use an extra few hundred dollars a month, why not give this a try…. #residualincome."

The image accompanying the post also stated, "I have spots available on my team!!! If you want to make an extra $200, $500, or $1,000 a month, message me!"

Good Housekeeping was not able to confirm if Rodan + Fields responded to the FTC within 48 hours, but the company provided the following statement regarding the coronavirus-related claims:

As part of our corporate responsibility, Rodan + Fields takes seriously the importance of adhering to and ensuring Independent Consultants follow all Federal Trade Commission (FTC) guidelines and best practices. Rodan + Fields has strict policies concerning earnings and product claims and does not tolerate misleading income claims or non-compliance. We are committed to following FTC guidelines and exploring how we can continue to educate and train Consultants surrounding this important topic.

Longtime MLM critic Jon M. Taylor, Ph.D., MBA, submitted a public comment to the FTC, in which he reported that only 0.4% of MLM participants actually turn a profit. You're more likely to earn money on a single bet on one number at the roulette wheel at Caesars Palace in Las Vegas or by participating in a no-product pyramid scheme, per Taylor's comments.

Arbonne's 2020 Independent Consultant Earnings Statement revealed that the average annual earnings for the top 1% was $253,607, the top 8% was $13,785 and the top 56% was $206. On their website, however, Arbonne makes a point to mention that "the results featured are not typical. Actual results will vary depending upon individual effort, time, skills, and resources. Arbonne makes no guarantees regarding earnings."

Of Rodan + Field's 362,300 enrolled consultants in 2019, 55% were Paid Consultants who received payment in at least one month for sales that happened during 2019 and 45% were Consultants who received the benefit of discounted prices, but did not earn any compensation from Rodan + Fields, per " data-vars-ga-product-id="6ae4d773-d131-4335-a89a-eac54f74c944" data-vars-ga-product-price="0.00" data-vars-ga-product-sem3-brand="" data-vars-ga-product-sem3-category data-vars-ga-product-sem3-id data-affiliate-network data-vars-ga-media-type>the company's Income Disclosure Statement. The top 1% of Paid Consultants earned an average of $339,045 in 2019, but the top 67.1% only earned an average of $306. Income isn't promised or guaranteed for Independent Consultants. "Earnings depend on a number of factors, including leadership, business experience, expertise, quality and depth of your network, and individual effort," " data-vars-ga-product-id="6ae4d773-d131-4335-a89a-eac54f74c944" data-vars-ga-product-price="0.00" data-vars-ga-product-sem3-brand="" data-vars-ga-product-sem3-category data-vars-ga-product-sem3-id data-affiliate-network data-vars-ga-media-type>Rodan + Fields writes.

Only 0.4% of MLM participants actually turn a profit, Jon M. Taylor reported to the FTC.

In most cases, it's an investment to even become a distributor in the first place: It costs $49 to register as an Arbonne Independent Consultant, not including the cost of buying products to sell, and $75 for a " data-vars-ga-product-id="b20b69e9-03a8-4a6b-be4b-c84d7a34df38" data-vars-ga-product-price="0.00" data-vars-ga-product-sem3-brand="" data-vars-ga-product-sem3-category data-vars-ga-product-sem3-id data-affiliate-network data-vars-ga-media-type>Rodan + Fields Business Starter Pack. Despite the registration price on their website, Arbonne tells Good Housekeeping that there are "no minimum purchase requirements when you join Arbonne, no inventory requirements, and no requirements to build a team."

Arbonne, like many other MLMs, has four ways that its consultants can earn money through their SuccessPlan: through commissions from product sales, overrides (earnings from product sales by your team members), Achiever Awards (which can include monetary bonuses) and additional awards based on team performance. Consultants at Rodan + Fields earn commissions and rewards based purely on product sales, not from sponsoring or recruiting team members, per the company.

Awards, which typically come in the form of vacations or cars, are something many distributors strive for. The Mercedes-Benz VP Success Award at Arbonne, in particular, is reserved for Regional and National Vice Presidents, and earned by less than 2% of consultants. Although Jamie remembers other distributors pushing the potential to "drive a free company car," the white Mercedes-Benz is nowhere near free. Arbonne's SuccessPlan states that "for every month paid as Vice President, you are eligible for the VP Success Award when you provide documentation that you have purchased or leased a white Mercedes-Benz automobile and have affixed the Arbonne car emblem to your automobile." The company doesn't cover the entire cost of the car, but gives Vice Presidents anywhere from $200 to $1,000 each month based on their Central Region and/or Central Nation qualifying sales volume to put toward their purchase.

While the companies cover themselves with facts, figures and warning statements, the conversations in team meetings and conferences lead participants like Jamie to believe that their hard work will be profitable. Jamie saw "girls absolutely killing themselves to make a living or even make a dollar through Arbonne who were left empty-handed." More than half of the MLM participants in the AARP Foundation survey reported similar findings: 52% said the company's representation of achieving financial success was either "not too accurate" or "not at all accurate."

Jamie remembers distributors buzzing about the "free car," but she never qualified for it during her time at Arbonne.

courtesy of subject

According to Stacie Bosley, Ph.D., an associate professor of economics at Hamline University, this thought process is problematic. "As an economist, I often feel like if people have full information, and it's not an illegal structure, then it's a judgement that the individual has to make. But so often, the individual doesn't have the right information rolling in, and it's also colored by relationships," she told Utah Business. It begs an even bigger question: "To what degree do people process this as a rational decision-maker, when the person recruiting me is someone that I know?"

Josie, who successfully made it to the top 1% at all three companies she worked with, believes this thinking stems from the "prosperity gospel" approach. "Distributors take the law of attraction and say that the reason that you're not seeing success is because you're a negative person," she says. To see results, distributors worked "from their bed or in the drive-thru." This type of behavior isn't just recommended; it's rewarded. "I can't tell you how many pictures I saw of women in the hospital who just gave birth gushing about how they just recruited a new person," she recalls.

Many MLMs see the flexible lifestyle as a selling point for potential distributors. On Arbonne's "Join Us" page, it reads: "You set your schedule, work wherever you want and determine your level of effort, whether working from your phone or meeting with prospective clients and groups in person." SeneGence, another international beauty and skincare brand, writes on their website that distributors can "work anytime, anywhere! As your own boss, you set your own schedule. Work full-time, just a few hours a week, virtually, or in-person — the choice is yours." The company tells Good Housekeeping that they are held to a high business ethics standards set forth in the Direct Selling Association's Code of Ethics and actually encourage distributors to "choose to live life and love in abundance, and then work for it."

In Josie's eyes, many MLMs find a way to "blur the lines between your work and personal life." As a distributor, "your personal life is your business," so the flexibility that may be found in work ultimately trickles down into their personal life. "Flexibility in work is a two-edged sword," Jeff Hill, Ph.D., Associate Director at Brigham Young University's School of Family Life, explains. "If you don't set boundaries, it can drain your energy and time in an effort to increase your resources."

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Two-thirds of MLM participants said they would not join the same MLM company again following their prior experience, according to a 2018 AARP Foundation survey. The three most common reasons for their exit were discomfort pitching to family and friends, the constant need to sell and inadequate earnings.

Josie describes her exit from the MLM world as a "slow, painful death." When distributors make a decision to leave, they aren't just leaving behind a company; they are "walking away from this entire mindset that you believed in and that you're now realizing is all a facade." For more than a year, she was overcome with fear and shame: "MLMs are very unique in the sense that distributors are the victims, but also the perpetrators."

But eventually, her desire to tell the truth trumped any fear she felt. At first, she only shared her YouTube video with 600 people in a private anti-MLM Facebook group. Shortly after, the industry caught wind of her departure, and she was blocked by distributors and mocked in Facebook groups.

MLMs are very unique in the sense that distributors are the victims, but also the perpetrators.

Jamie's experience was strikingly similar. "I lost about 600 Instagram followers, people blocked my phone number and people reached out to my husband," she claims. She felt as though her "sisters" turned their back on her: "One of the biggest things in Arbonne that they pitch is how you can make sisters, you have a family now. When you decide to walk away, you lose that."

In the time since, both women have found a new support system within the anti-MLM community. There are massive Reddit threads (r/antiMLM subreddit has 708,000 members as of publication), Facebook groups like "Monica Hayworth's Anti MLM Group" and private support groups for anti-MLMers like "Sounds Like MLM But OK" (there's also an unrelated podcast by the same name). They aren't communities that shame those involved in MLMs, but are places of education and comfort. The "Sounds Like MLM But OK" Facebook group has guidelines that read:

"While we do engage in some lighthearted ribbing of cringey MLM pitches, we are not a shaming group, nor are we a hate group. If you're here to troll or mock consultants, you're in the wrong place."

Groups like The Anti-MLM Coalition are turning personal pain and frustration into activism. Started back in 2017, the activist group is a source of information for anyone throughout their MLM journey: The website has a master list of MLMs, a checklist to determine if a company is actually a MLM, and resources for people concerned about their loved ones involved in MLMs, those trying to plot their exit and other anti-MLMers trying to use their voice for good.

When Emma, one of the group's co-founders who asked that we omit her last name for privacy, first became aware of the anti-MLM movement in 2013 — four years before The Anti-MLM Coalition came to be — she was surprised to see how little truth there was online. "The Internet was peppered with articles derived from MLM press releases and information that asked, 'Is MLM a scam,' but would inevitably conclude that it wasn't a scam and was an excellent opportunity," she recalls. At the time, there were a number of industry experts making waves, like Steven Hassan, Ph.D., author of Combating Cult Mind Control, but Emma and her co-founders wanted to be a cohesive, comforting voice.

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Many find "great relief that the creeping doubts are confirmed in our information," but others who are deep in the MLM industry "label us as 'haters' without ever offering robust and evidence-based arguments." This has only been amplified by the pandemic: "Many who signed up early in the pandemic have found themselves trying to sell product in a saturated market and have discovered that recruiting others is the only way to make a living wage, but as has always been the case, many sign-ups from last spring have already crashed and burned."

But still, the heart of the movement comes from former distributors like Josie and Jamie, who are continuing to share their experiences on YouTube. Some, like Josie, are even giving others a platform to share their stories, especially if they aren't comfortable enough to make videos of their own. One of Josie's most recent videos, for example, shared the perspective of a Rodan + Fields consultant who left the company after earning seven figures over a period of time. Good Housekeeping reached out to the consultant, but was unable to independently confirm the claims made in the video.

Josie, Jamie and other anti-MLMers have a collective goal: to make others feel less alone. Dr. Hassan believes MLMs are "commercial cults" — and Josie agrees that once ex-MLMers can make sense of this, they can find peace in their past decisions. "Once you grasp that, you realize that you were a victim and lied to. Had you been presented with everything you were going to be involved with, you probably wouldn't have joined in the first place."

Amanda Garrity Editor Amanda Garrity has over seven years of experience writing lifestyle content, including almost five years on staff at Good Housekeeping, where she covered all things home and holiday, including the latest interior design trends, inspiring DIY ideas and gift guides for any (and every) occasion.